Cash WinFall involved buying a $2 ticket and picking
six numbers between 1 and 46.

Unlike most other lotteries, the jackpot was capped at $2
million.

If that figure was reached and no one matched all six
numbers, the money in the jackpot was distributed among the lower
tier prizes for that drawing — otherwise known as a
"roll-down."

The odds of hitting the jackpot were one in 9,366,819.

But if you were smart, patient and had the means — as the three
betting groups were — there was a loophole in the system big
enough to drive a truck through.

"The odds of matching five of the six numbers was about
39,000 to one, according to the odds published on the Lottery’s
website during the game," the OIG writes. "That’s still a long
shot on a single $2 ticket but within reach if you’re
able to buy in bulk."

For instance, on Feb. 8, 2010 no one won the jackpot
but $2,970,119 was paid out in lower tier prizes. So
someone who spent $400,000 to buy 200,000 Cash WinFall
tickets for the Feb. 8 drawing could reasonably expect to have
cash winnings of $425,640, based on statistical probabilities.
The actual outcome could be quite different, but
statistically this person has a 50 percent chance of winning
$425,640 or more in cash prizes from this drawing.

In January 2005, MIT senior James M. Harvey was looking for a
senior independent study project, and came across Cash WinFall.
According to the report, it took him "only a few days" to realize
the potential contained within Cash WinFall's loophole.

Harvey organized a group that bought 500 $2 tickets at
nearby retailers. He called his operation Random Strategies LLC,
after the MIT
dorm where the scheme was hatched.

One of those tickets matched four of the six winning numbers,
paying $2,364. Along with a few other three-out-of-six
matches, the group turned $1,000 into about $3,000, the report
found.

For the next seven years or so, schooling Cash WinFall became a
full-time occupation for Harvey and several other MIT grads.
While it required tedious work filling out individual slips and
tax forms, it appears to have paid off.

The report found the MIT group wagered between
$17 million and $18 million on Cash WinFall. While Harvey
declined to disclose his profits, the OIG estimates his
group made at least $3.5 million before taxes, assuming that
it had profits before taxes of a minimum of 20 percent during its
seven year participation in the game.

That leads to the best part of the report:

"The rewards of [Harvey's] participation in Cash WinFall have not
dramatically changed Mr. Harvey’s lifestyle. Mr. Harvey said that
when he began playing Cash WinFall, his car was a 1995 Chevrolet
Corsica which he had purchased for $500 at a government
auction. As the MIT group became successful at Cash
WinFall, he upgraded his ride to a high-mileage 1999 Nissan
Altima."

The OIG goes on to detail how a retired store owner from Michigan
named Gerry Selbee and his wife also exploited the game, the
concept of which had actually originated in the Wolverine State.
Mr. and Mrs. Selbee would drive to Massachusetts to find stores
where they could buy Cash WinFall tickets in large numbers,
eventually including store clerks into their winnings.

Two Boston-based biomedical researchers also cracked the game,
though it took months to fill in the individual tickets, the
report found. It did not say how much this or Selbee's group made
from their system.

Although Cash WinFall has since been phased out, the game proved
a win-win for everyone involved:

"Based on the documents reviewed by the OIG and the interviews
described above, I have concluded that Cash WinFall was a
financial success for the Lottery. It generated about $300
million in ticket sales, with nearly $120 million of that going
to Lottery operations and the pool of funds distributed to cities
and towns. The high-volume bettors were a financial boon
to the Lottery, collectively buying roughly $2 million in
tickets for a typical roll-down drawing – 40 percent of
which the Lottery would keep to redistribute to cities and
towns."